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Difficulty: Very hardCustomer Account Types and Ownership Structures

Arthur and Beatrice, who are business partners but not married, establish a joint brokerage account designated as Tenants in Common (TIC) with an agreed ownership ratio of 70% for Arthur and 30% for Beatrice. Shortly after opening the account, Arthur submits a valid Limited Power of Attorney (LPOA) to the broker-dealer, authorizing an independent registered investment adviser to trade on behalf of the account. Simultaneously, Arthur opens a separate custodial account under the Uniform Transfers to Minors Act (UTMA) for his nephew, appointing himself as the custodian. Which of the following statements regarding the legal, tax, and regulatory rules governing these account structures are correct?

  1. Upon Arthur's death, his 70% ownership interest in the Tenants in Common account passes to his estate or designated heirs rather than automatically transferring to Beatrice.Answer
  2. The Limited Power of Attorney permits the designated investment adviser to execute trades in the TIC account but strictly prohibits the adviser from withdrawing cash or securities from the account.Answer
  3. C
    If Arthur dies, his 70% share of the TIC account automatically transfers to Beatrice without passing through probate, operating identically to a Joint Tenants with Rights of Survivorship (JTWROS) account.
  4. D
    SIPC coverage evaluates Arthur's 70% share of the TIC account as a separate legal entity, granting up to $250,000 in cash protection exclusively for his portion of the account.

Answer

The correct statements are that upon Arthur's death, his 70% share of the TIC account passes to his estate rather than to Beatrice, and that the Limited Power of Attorney permits the investment adviser to trade but not withdraw assets.
In a Tenants in Common (TIC) account, ownership interest is fractional and passes to the deceased tenant's estate upon death rather than to the surviving owner. Additionally, a Limited Power of Attorney grants third-party trading privileges but explicitly restricts asset disbursements or cash withdrawals.

Step-by-Step Solution

1
Analyze survivorship rights in Tenants in Common (TIC) accounts.
TIC ownership does not include rights of survivorship. Each tenant's percentage passes to their respective estate/beneficiaries upon death, not to the surviving account owner(s).
JTWROS accounts transfer assets directly to surviving owners; TIC accounts preserve specified percentage ownership for the decedent's estate.
2
Evaluate the scope of authority conferred by a Limited Power of Attorney (LPOA).
An LPOA grants trading authority to place buy and sell orders, but does not allow third-party withdrawals or transfers of funds.
Only a Full Power of Attorney (FPOA) authorizes third parties to withdraw cash or securities from a customer account.
3
Review Securities Investor Protection Corporation (SIPC) coverage rules for joint accounts.
A joint account is treated as a single separate customer capacity under SIPC, capped at 500,000overall(witha500,000 overall (with a 250,000 sub-limit for cash), regardless of tenant ownership proportions.
SIPC coverage applies per customer capacity, not per individual tenant or by fractional ownership percentages.

Key Concept

Distinguishing Tenants in Common (TIC) survivorship provisions, trading authority levels (LPOA vs FPOA), and SIPC coverage limits for joint account capacities.
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Topics

Customer Account Types and Ownership Structures